SHARETIPSINFO >> Articles Directory >> Capitalize and Capitalization meaning and importance in financial market
Click here to Enjoy Live SHARE MARKET Commentary and for NSE & MCX
Capitalize is a term often heard in the financial market. It is the term used to describe the method of delaying the recognition of the expenses. This is done by recording the expenses in the form of assets that are long term. This is highly helpful to the companies which are acquiring high valued assets. They can get assets that are long termed. The cost then can be divided over the given time period.
Companies usually take the expenses that are incurred for the current date. This is then deducted from the asset value over a long time period. This will not bring about an immediate effect in the value against the revenues. Capitalize will not appear in the income statement. It rather appears in the credit of the long term assets. But the depreciation is reported in the income statement.
The capitalized cost will appear as a debit on the balance sheet. Due to capitalization, the long term asset will have a larger value. Hence the value depreciated will also have a larger value. The timing recognized for the expense is changed. But then all expenses are finally reported in the income statement.
Capitalize have a greater value in the financial market. This is being used for the calculation of a large number of credits and debits involved in the finance. It is never supposed to be confused with capitalization. It is possible to convert the company’s fund that is reserved into a capitalized cost and is known as capitalizing. This is considered as a long term investment in the company’s capital assets. This is knows as capitalize development costs. This is never to be treated as an ordinary investment. This will be on the other side charged for the period in which the sum came to be operated.
Capitalize can be used to know the value of an asset. This is generally made by calculating over a fixed period of time. This can be evaluated and transformed to an equivalent amount known as the capital sum. This in the most generalized meaning means that transforming capital to profit. That is the capital is taken advantage of.
Capitalize has a great value in making a rough calculation of the capital that is being transformed into useful money in the company. This money can be used for making profit in the business.
The terms in accounting can have different meanings as compared to its usage in a general case. Capitalization is one example of such a word which has an entirely different concept in finance. The word refers to the cost required to buy an asset. This includes the price to get a particular asset. The retained earnings of a company added with the stock and long term debt will include the invested capital of the company.
The company’s shares that are currently outstanding when multiplied by the share price will give the market capitalization of that company. The values of capitalization as different from the normal values are symbols of potential negatives in the market. There can be deviations from the normal values of capitalization including the overcapitalization and undercapitalization. Both of these refer to potential negatives.
Capitalization can also be referred to as the long term financing required by a firm. The financing modes can be stock or preferred stock. It can also be retained earnings or long term debt. If the firm is capitalized with little or without long term debt is considered to have financed conservatively. Capitalization is also referred to as financial structure, capital structure or total capitalization.
A company can include various assets that can be bought and sold. This determines the shares of the company. This share can be multiplied with the number of shares in the company gives the capitalization of the company. Companies are categorized based on the capitalization. If the capitalization is above $10 billion, the company falls under large-cap. If it is between $2 billion and $10 billion, the company is a mid-cap company. If it is between $250 million and $2 billion, the company can be called small-cap. Those companies which have a capitalization below $250million are commonly known as a micro-cap.
Capitalization is a determination of the market value of the company. This is based on the economic and monetary status of the company. Thus it is never dependent on the previous history of a company. There can be economic bubbles where companies are caught for a particular period.
There can be immediate changes brought about in the market at any time. There cane be unexpected happenings as well. All these can determine the capitalization of a company also.
For more articles click here
To Know About our Packages Click here
Click here for Indian stock market tips